In the past few weeks, we’ve talked a lot about how to get started in freelancing, and we’ve occasionally even focused on the importance of making a little moolah!  Now, let’s take a look at what to do when you actually do get paid for those first few gigs. 

One of the first things that Tamara and I did when we were creating our company was to set up a bank account.  I’d imagine that a lot of folks might put this step off until after they’d actually received a payment; but in our case, we needed an account from which we could withdraw funds in order to set up a couple of online accounts (Guru, PayPal, etc.).  Our first account was opened in my name, as we were operating under a previous business license that I had; and the name on the account had to match the name on the license.

We chose to use Washington Mutual because Tamara and I both already had personal accounts there, and so far, we’ve been very happy with our choice.  They don’t really support accounts for large corporations, focusing instead on small businesses.  We think this works out great for us little folks, as the account managers we worked with didn’t treat us like we were wasting their time with our piddly little $200 deposit.  In fact, they sat down with us and took quite a bit of time to offer some advice.  We thought we’d pass it on to those of you who are starting your own businesses.

Once we had our new business license, we returned to close the original account and to properly set things up in the business’ name.  One of the most useful pieces of advice we received from Wendy and Amy (the account managers) was to open multiple accounts.  This seemed a little funny at first, but their reasoning was really great.  (Also, each account was free, so it wasn’t like they were just bilking us for more fees.)

The first checking account is just for normal business operations.  When we receive a check from a client, it goes in this account.  If we need to buy printer paper or a reference book, the money comes from here.  We also get paid out of this account!    Generally, we do everything with this one that you would normally expect from a business checking account.  So, with this all set up, why would we need more? 

The second checking account is exclusively for online transactions.  The ever-so-helpful bank employees pointed out that it is not entirely uncommon for account information to get stolen on the internet.  By setting up a separate account for these transactions, we are able to limit the amount of money that a thief could access.  If a client pays us through PayPal, for example, this money would be transferred into the “online transactions” account.  We keep some money here for making internet purchases, but the majority of payments to this account will generally be transferred over to the regular operating account shortly after being deposited.

Our final account is set up solely for taxes.  We thought this was also a great piece of advice.  According to our account managers, the majority of businesses fail because they don’t plan for taxes.  When it comes time to make a tax payment, they have no money in reserve and end up taking it out of their own pockets – if they’re lucky.  Otherwise, it can be time to close up shop. 

We set this up as a savings account so that we could accrue a little interest; and we put 20% of everything we earn directly into this account.  Because of the way our business is set up, we each pay separate taxes on our earnings from the business.  We will split the money from this account evenly and put it toward whatever taxes we need to pay.  Anything that happens to be left (oh please, oh please) will be ours to keep.  Since we’re likely to be in different tax brackets, this was the fairest system we could envision for ourselves.

Having all of these accounts is a bit of a hassle.  There’s definitely more math to be done as a result of having three separate accounts (four, if you count the first one that we haven’t been able to close just yet).  We also have to be sure to keep our debit cards in order so we don’t mistakenly use the operating account for online transactions.  Thanks goodness for Sharpies, eh?  We can just write directly on the front of the card to prevent mix ups. 

In the long run, though, we feel really good about protecting ourselves and our business; and a wee bit of extra paperwork is worth it to us.  Hopefully you’ll find this helpful, too.

Does anyone else have any banking/accounting advice that might be helpful to home business owners?  Tell us about it in the comments!

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